Rule 4.3A Appendix 4E Preliminary Final Report Name of entity FARM PRIDE FOODS LTD ABN or equivalent company reference: 1. 42 080 590 030 Reporting period Report for the financial year ended 30 June 2017 Previous corresponding period is the financial year ended 30 June 2016 2. Results for announcement to the market Revenues from ordinary activities (item 2.1) up 4.28% to $97.78m Profit from ordinary activities after tax attributable to members (item 2.2) up 4.31% to $8.48m Net profit for the period attributable to members (item 2.3) up 4.31% to $8.48m Dividends (item 2.4) Amount per security Franked amount per security Interim dividend - - Final dividend - - Record date for determining entitlements to the dividend (item 2.5) N/A Brief explanation of any of the figures reported above necessary to enable the figures to be understood (item 2.6): Refer to Director's report. 3. Income Statement (item 3) Refer to the attached statement and relevant notes 4. Balance Sheet (item 4) Refer to the attached statement and relevant notes 2 5. Statement of Cash Flows (item 5) Refer to the attached statement and relevant notes 6. Statement of retained earnings (item 6) Consolidated Entity 2017 $'000 2016 $'000 Balance at the beginning of year 8,581 454 Net profit attributable to members of the parent entity 8,481 8,127 17,062 8,581 - - 17,062 8,581 Total available for appropriation Dividends paid Balance at end of year 7. Net tangible assets per security (item 6) Net tangible asset backing per ordinary security 8. Current period Previous corresponding period 82.97 67.75 Significant information relating to the entity's financial performance and financial position. Refer to the attached Financial Report. 9. The financial information provided in the Appendix 4E is based on the annual financial report (attached), which has been prepared in accordance with Australian Accounting Standards. 10. Commentary on the results for the period. Refer to the Director's Report 11. \u0000 12. \u0000 Audit of the financial report The financial report has been audited The audit has been completed. The financial report contains an independent audit report that is not subject to a modified opinion, emphasis of matter or other matter paragraph. 3 Farm Pride Foods Limited ABN 42 080 590 030 and Controlled Entities Financial Report For the year ended 30 June 2017 0 Corporate Information Farm Pride Foods Ltd. ABN 42 080 590 030 Directors Peter Bell (Non-Executive Chairman) Bruce De Lacy (Executive Director / CEO) Malcolm Ward (Non-Executive Director) Company Secretary Bruce De Lacy Registered Office 551 Chandler Road Keysborough, Victoria 3173 (+61-3) 9798 7077 Solicitors B2B Lawyers 76 Jolimont St East Melbourne, Victoria 3002 Bankers Westpac Banking Corporation Level 7, 150 Collins Street Melbourne, Vic 3000 Share Register Computershare Registry Services Pty. Ltd. Yarra Falls, 452 Johnston Street Abbotsford, Victoria 3067 ASX: FRM Auditors Ernst & Young 8 Exhibition Street Melbourne, Victoria 3000 Internet Address www.farmpride.com.au 1 TABLE OF CONTENTS Chairman's Report 3 Directors' Report 5 Auditor's Independence Declaration 16 Financial Report for the year ended 30 June 2017 Consolidated Statement of Profit or Loss and Other Comprehensive Income 17 Consolidated Statement of Financial Position 18 Consolidated Statement of Changes in Equity 19 Consolidated Statement of Cash Flows 20 Notes to the Consolidated Financial Statements 21 Directors' Declaration 53 Independent Auditor's Report 54 ASX Additional Information 59 2 Chairman's Report The Company's net revenue increased 4.3% to $97.78m (2016 $93.77m). The increase was largely due to our investment in the new free-range farm which was completed at the end of calendar year 2016. Profit after tax was $8.48m (2016 $8.13m), an increase of 4.31%. Underlying EBITDA of $15.71m was relatively consistent with the prior period (2016 $15.99m). Cash management was favourable with cash increasing by $4.6m to $8.04m at 30 June 2017 despite an increase in inventory and receivables in excess of $2m. Net financial debt at 30 June 2017 was $0.33m (2016 $1.14m). The overall result was pleasing particularly when during the period November 2016 to February 2017 there was a significant increase in inventories with corresponding downward pressure on pricing due to an industry oversupply. Inventory continues to remains higher than ideal in the lead up to the spring period. We remain committed to our strategy to focus on our brands, investment in new farms, stable cash flow and growth opportunities. Consistent with our strategy, in July 2017, we acquired land for a new free-range farm in northern Victoria at a cost of $1.95m. This will be the site for a free range farm. Infrastructure improvements will be commencing as soon as practicable and construction of 2 sheds is due to commence later this calendar year. This purchase is also consistent with our commitment to support the changing requirements of our customers. The recently and much-publicised supermarket egg price war presents a challenge for the industry and the Company. Mr John Dunn CEO Egg Farmers Australia was reported as saying in July 2017 \"the transition from caged eggs to free range requires an enormous amount of investment by industry which was made more difficult if they eventually received less for their product.\" We understand the need to adapt to a changing customer landscape, however, as Mr Dunn stated, to meet our customers ongoing changing requirement for more free range we need to be paid appropriately. The Australian Competition and Consumer Commission (ACCC) filed a Notice of Appeal from the Federal Court's decision on 10 February 2016 dismissing the ACCC's proceedings against the Australian Egg Corporation Limited (AECL) and others including Farm Pride Foods Ltd. The Appeal was heard by the full Court of the Federal Court of Australia on the 15 August 2016 and we are awaiting a judgement from the courts on the Appeal. Farm Pride Foods Ltd continues to deny the allegations made by the ACCC which is consistent with the decision of the trial judge who dismissed the claims. With the improved position of the company, directors have reviewed a number of options to utilise cash including the payment of dividends, share buybacks, investment into new facilities and growth opportunities. Our overriding desire is to maximise shareholder value. Given our customers indications for non-cage production we will continue to utilise the cash for further development of new facilities or acquisitions to meet that demand. We are also conscious of the potential for industry volatility. The Bureau of Meteorology has reported the outlook suggests dry and warm conditions are likely as we head into spring. Australia had its second driest June in 118 years of records, and July stayed drier than average over much of the south. This does not auger well for grain prices. Over the last few months we have seen grain prices spike upwards and with the recent rain this has recovered somewhat but not back to the previous levels. Our expectation is for higher feeds costs for 2018. Typically, increased day length, sunnier days and less rain for southern parts of Australia present the best conditions for increased egg production. The additional free range capacity added over the last couple of years and the growing number, Australia-wide, of smaller operators of hen flocks will again 3 result in increased inventory levels in the period from Spring until early in the new year which places further downward pressure on prices. This type of variability is typical of the egg industry and together with disease and changing weather patterns is why the Board continues to exercise cautious optimism about the future. Our expectation for 2018, due to increased feed costs, anticipated oversupply and reduced pricing is for an EDITDA reduction of up to 20% compared with 2017. The Board acknowledges and thanks our customers who have continued to work with us closely and constructively to maintain our supply partnerships. We also acknowledge the input and efforts of all our employees and thank them for their continuing commitment to our business. Peter Bell Chairman 4 Directors' Report The Directors present their report together with the financial report of the consolidated entity consisting of Farm Pride Foods Limited ('the Company') and the entities it controlled ('Farm Pride Foods', or the 'Group'), for the financial year ended 30 June 2017 and auditor's report thereon. Directors The names of directors in office at any time during or since the end of the year are: Peter Bell Non-executive Director - Appointed 30 May 2008, Appointed Chairman 30 September 2016 Malcolm Ward Non-executive Director - Appointed 30 May 2008 Bruce De Lacy Executive Director - Appointed 30 April 2014 Phillip Campbell Non-executive Director - Appointed 4 September 2015, Resigned 30 September 2016 The directors have been in office since the start of the year to the date of this report unless otherwise stated. Principal activities The principal activities of the consolidated entity during the financial year were the production, processing, manufacturing and sale of egg and egg products. There has been no significant change in the nature of these activities during the financial year. Results and review of operations Statutory consolidated net profit after tax attributable to the members of Farm Pride Foods Limited (\"Statutory Profit\") for the year ended 30 June 2017 was a profit of $8.48 million (2016: $8.13 million). Underlying earnings before interest, tax, depreciation and amortisation (\"Underlying EBITDA\") was $15.71 million (2016: $15.99 million). Underlying EBITDA represents statutory earnings before interest, tax, depreciation and amortisation adjusted for items that are material to revenue or expense that are unrelated to the underlying performance of the business ('significant items'). Farm Pride believes that presenting Underlying EBITDA provides a better understanding of its financial performance by facilitating a more representative comparison of financial performance between financial periods. The results are presented with reference to the Australian Securities and Investment Commission Regulatory Guide 230 \"Disclosing non-IFRS financial information\". The following table reconciles the Statutory Profit to Underlying EBITDA for the year ended 30 June 2017: 30 June 2017 $'000 30 June 2016 $'000 8,481 8,127 150 413 - Income tax 3,751 3,358 - Depreciation and amortisation 3,331 3,514 15,713 15,412 - 576 15,713 15,988 Statutory profit Add back: - Interest (finance costs) EBITDA Significant items: Impairment of plant and equipment Underlying EBITDA 5 Directors' Report (continued) Results and review of operations (continued) For further discussion of the review and results of operations of the Company reference should be made to the Chairman's Report dated 18 August 2017. Significant changes in the state of affairs There have been no significant changes in the consolidated entity's state of affairs during the financial year. After balance date events On 24 July 2017 the Company purchased a new property in Northern Victoria at a purchase price of $1.95 million. This will be the site for a free range farm. Infrastructure improvements will be commencing as soon as practicable and construction of 2 sheds is due to commence later this calendar year. No other matters or circumstances have arisen since the end of the financial year that have significantly affected or may significantly affect the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity in future financial years. Likely developments The Company will continue to pursue its operating strategy to create shareholder value. Environmental regulation The consolidated entity's operations are not subject to any significant environmental, Commonwealth or State regulations or laws. The consolidated entity is not aware of any significant breaches of environmental regulations during the financial year. Dividend paid, recommended and declared No dividends were paid, declared or recommended since the start of the financial year. Share options No options over unissued shares or interests in the consolidated entity were granted during or since the end of the financial year and there were no options outstanding at the end of the financial year. Information on directors and company secretary The qualifications, experience and special responsibilities of each person who has been a director of Farm Pride Foods Limited at any time during or since 1 July 2016 is provided below, together with details of the company secretary as at the year end. Peter Bell (Non-executive Chairman - Appointed 30 May 2008, Member of the Audit Committee) Peter has been involved in the egg industry for more than 50 years and comes from a third generation poultry farming family. He continues to be directly involved in the management of commercial egg farms and has wide experience in all aspects of the egg industry. He is the Managing Director of AAA Egg Company Pty Ltd and its subsidiary West Coast Eggs Pty Ltd, a director of Novo Foods Pty Ltd, a director of Days Eggs Pty Ltd, a director of Hy-Line Australia Pty Ltd, a director of Specialised Breeders Australia Pty Ltd, Lohmann Layers Australia Pty Ltd and Pure Foods Eggs Pty Ltd. 6 Directors' Report (continued) Malcolm Ward (Non-executive Director - Appointed 30 May 2008, Chairman of the Audit Committee) Malcolm has been in the egg industry for over 25 years having owned and operated cage and free range farms and has served on industry related boards in the area of farm management and feed supply. He is also a director of AAA Egg Company Pty Ltd and its subsidiary West Coast Eggs Pty Ltd as well as being a director on a number of other private companies. Malcolm is the Managing Director of his family's independent supermarkets and also has commercial interests in property. He is also a director of Australian United Retailers Limited, appointed 17 November 2010. Bruce De Lacy (Company Secretary - Appointed 30 October 1997, Chief Financial Officer - Appointed 10 June 2013, Executive Director - Appointed 30 April 2014, Chief Executive Officer - Appointed 19 March 2015) Bruce has over 35 years' experience in the egg industry and has previously been employed in a number of positions at the Company including General Manager and Chief Operating Officer. Bruce has a Bachelor of Business Studies from Swinburne University, majoring in Accounting, is a CPA and is a Fellow of the Governance Institute of Australia. Phillip Campbell (Non-executive Director - Appointed 4 September 2015, Resigned 30 September 2016) After graduating as an engineer from the University of Queensland, Phillip gained valuable project management experience in the mining industry in South Africa and the coconut/palm oil industry in Asia before turning his attention to technical sales and marketing across Australia, US and South East Asia, in industries including resources, animal feed, laboratory services, building materials and distribution/logistics. Phillip's commercial experiences in the last 35 years include M&A activity, IPO, capital raising and debt restructuring. Phillip is currently a director and advisor to a number of unlisted public, private and not-for-profit organisations across Australia and is based in Melbourne. 7 Directors' Report (continued) Board of Directors Audit Committee Eligible to attend Attended Eligible to attend Attended Malcolm Ward 13 13 5 5 Peter Bell 13 13 5 4 Phillip Campbell 4 3 - 2* Bruce De Lacy 13 13 - 5* * Messrs. Campbell and De Lacy attended by invitation. Directors' interests in shares Directors' relevant interests in shares of Farm Pride Foods Ltd or options over shares in the Company are detailed below: Directors' relevant interests in: Ordinary shares of Farm Pride Foods Ltd. Options over shares in Farm Pride Foods Ltd. Peter Bell 2,246,250 - Malcolm Ward 2,031,772 - Bruce De Lacy 195,502 - Indemnification and Insurance of directors and officers During the financial year, the Company has paid premiums to insure each of the Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Director of the Company. The contracts as held by the Company do not permit premiums to be disclosed. Further disclosure required under section 300(9) of the Corporations Act 2001 is prohibited under the terms of the contract. Proceedings on behalf of the consolidated entity The Australian Competition and Consumer Commission (ACCC) filed a Notice of Appeal from the Federal Court's decision on 10 February 2016 dismissing the ACCC's proceedings against the Australian Egg Corporation Limited (AECL) and four other corporate and individual respondents including Farm Pride Foods Ltd. The Appeal was heard by the full court of the Federal Court of Australia on the 15 August 2016. We are still awaiting a judgement from the courts on the ACCC Egg Cartel appeal. Farm Pride Foods continues to deny the allegations made by the ACCC consistently with the decision of the trial judge who dismissed the claims. Auditor's independence declaration A copy of the Auditor's Independence declaration as required under section 307C of the Corporations Act 2001 in relation to the audit for the financial year is provided with this report. 8 Directors' Report (continued) Indemnification of auditors To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. Non audit services Non-audit services are approved by resolution of the audit committee and approval is provided in writing to the board of directors. Non-audit services were provided by the auditors of entities in the consolidated group during the year, namely Ernst & Young Melbourne, network firms of Ernst & Young, and other non-related audit firms, as detailed below. The directors are satisfied that the provision of the non-audit services during the year by the auditor is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. Taxation services Pitcher Partners Ernst & Young Capital and debt advisory services - Ernst & Young 2017 $ 2016 $ 12,000 8,472 20,472 14,700 14,700 Remuneration report (Audited) The directors present the consolidated entity's 2017 remuneration report which details the remuneration information for Farm Pride Foods' executive directors and non-executive directors. This report outlines the remuneration arrangements for directors and executives of Farm Pride Foods and its controlled entities in accordance with the Corporations Act 2001 and its Regulations ('Remuneration Report'). The Remuneration Report has been audited by Farm Pride Foods' external auditors, Ernst & Young. Key management personnel Key management personnel ('KMP') comprises the directors and the Chief Executive Officer ('CEO'), CFO and Company Secretary, Bruce De Lacy. The KMP are responsible for the implementation of Farm Pride Foods' vision, values, corporate strategies and risk management systems, as well as the day-to-day management of the business. 9 Directors' Report (continued) Details of key management personnel Period of Responsibility Position Phillip Campbell Appointed 4 September 2015 Resigned 30 September 2016 Non-executive Chairman Peter Bell Appointed 30 May 2008 Appointed 30 September 2016 Non-executive Director Non-executive Chairman Malcolm Ward Appointed 30 May 2008 Non-executive Director Chairman of the Audit Committee Appointed 30 October 1997 Appointed 10 June 2013 Appointed 30 April 2014 Appointed 19 March 2015 Company Secretary Chief Financial Officer Executive Director Chief Executive Officer Directors Non-executive Executive Bruce De Lacy Remuneration policy The performance of the Group depends upon the quality of its directors and executives. To be successful, the Group must attract, motivate and retain highly skilled directors and executives. To this end, the Group adopts the following principles in its remuneration framework: Provide competitive rewards to attract high calibre executives Link executive rewards to the performance of the Group and the creation of shareholder value Establish appropriate performance hurdles for variable executive remuneration Meet the Company's commitment to a diverse and inclusive workplace Promote the Company as an employer of choice Comply with relevant legislation and corporate governance principles. In accordance with best practice corporate governance, the structure of non-executive director and executive remuneration is separate and distinct. The board of directors are responsible for determining and reviewing compensation arrangements for directors and executives. The board of directors assess the appropriateness of the nature and amount of remuneration of directors and executives on a periodic basis by reference to relevant market conditions, as well as whether performance targets have been met, with the overall objective of ensuring maximum shareholder benefit from the retention of a high quality board and executives. 10 Directors' Report (continued) Use of Remuneration Consultants To ensure the board of directors are fully informed when making remuneration decisions, it seeks external remuneration advice. Remuneration consultants are engaged by, and report directly to, the committee. In selecting remuneration consultants, the committee considers potential conflicts of interest and requires independence from the Company's key management personnel and other executives as part of their terms of engagement. During the year, the board of directors engaged Simon Hare of HaRe Group to provide recommendations regarding: Insights on remuneration trends, regulatory developments and shareholder views; Market, industry and role data in relation to key management personnel; and Executive incentive schemes. The fees paid to the HaRe Group for remuneration advisory services amounted to $8,244.50. The board of directors are satisfied the advice received from the HaRe Group is free from undue influence from key management personnel to whom the remuneration recommendations apply, as the consultants were engaged by, and reported directly to, the Chairman. Non-Executive Director Remuneration Objective The board aims to set aggregate remuneration at a level which provides the Group with the ability to attract and retain directors of the highest calibre, whilst incurring a cost which is acceptable to shareholders. Structure The Group's Constitution and the ASX Listing Rules specify the aggregate remuneration of non-executive directors shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is then divided between the directors as agreed. The cap on aggregate non-executive directors remuneration (which requires shareholder approval), and the manner in which it is apportioned amongst non-executive directors, is reviewed annually. The board will consider advice from external consultants as well as fees paid to non-executive directors of comparable companies when undertaking the annual review process. Superannuation contributions are made by the Group on behalf of non-executive directors in line with statutory requirements and are included in the remuneration package amount allocated to individual directors. The remuneration of non-executive directors for the period ended 30 June 2017 is detailed in the table titled Remuneration of key management personnel on page 14 (the 'Remuneration Table'). Executive Director Remuneration Executive directors are paid for their services as part of their employment contracts. Each executive director appointment to the board is conditional on them being employed by the Group. Executive Remuneration Objective The Group aims to reward executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group. This involves: Rewarding executives for company, business unit and individual performance against targets set by reference to appropriate benchmarks; Aligning the interest of executives with those of shareholders; Linking reward with the strategic goals and performance of the Group; and Ensuring total remuneration is competitive by market standards. 11 Directors' Report (continued) Structure In determining the level and make-up of executive remuneration, the board of directors engage external consultants on market levels of remuneration for comparable roles. Remuneration consists of the following key elements: Fixed remuneration; and Variable remuneration. The proportion of fixed remuneration and variable remuneration is established for each executive by the board of directors. The variable portion consists of a cash bonus which is performance-based and is disclosed separately in the Remuneration Tables. The board of directors also considers current market conventions with regards to the splits between fixed, short-term and long-term incentive elements. Fixed Remuneration Objective The level of fixed remuneration is set to provide an appropriate and market-competitive base level of remuneration. Fixed remuneration is reviewed annually by the board of directors consisting of a review of Group, business and individual performance, relevant comparative remuneration in the market and internal and external advice on policies and practices where necessary. Structure Fixed remuneration is the non-variable component of an executive's annual remuneration. It consists of the base salary plus any superannuation contributions paid to a complying super fund on the executive's behalf, and the cost (including any component for fringe benefits tax) for other items such as novated vehicle lease payments. The amount of fixed remuneration is established based on relevant market analysis, and having regard to the scope and nature of the role and the individual executive's performance, expertise, skills and experience. Linking remuneration to performance - variable remuneration Remuneration is linked to performance to retain high calibre executives by motivating them to achieve performance goals which are aligned to Farm Pride Foods' interests. Variable remuneration Objective The objective of executive variable remuneration is to link executive remuneration to the achievement of the Group's annual operational and financial targets through a combination of both company and individual performance targets. Scheme Structure Variable remuneration is expressed as a percentage of a participant's total fixed remuneration ('TFR') comprising base salary, superannuation contributions and any other non-cash benefits, and are based on the achievement of budgeted revenue and profit targets each financial year. The board policy for determining the nature and amount of remuneration of key management personnel ('KMP') is agreed by the board of directors as a whole. For executives, the Company provides a remuneration package that incorporates cash bonuses and may include share-based remuneration. The contracts for service between the Company and executives are on a continuing basis the terms of which are not expected to change in the immediate future. The remuneration policy is directly related to Company performance at the discretion of the board of directors. 12 Directors' Report (continued) Bonuses are payable at the discretion of the board of directors. Non-executive directors receive fees and do not receive share-based remuneration or bonus payments. The Company determines the maximum amount for remuneration for directors by resolution. Employment Arrangements Chief Executive Officer, Chief Financial Officer and Company Secretary Bruce De Lacy is the Chief Executive Officer of the Company. Bruce is employed under a standard employment contract with no defined length of tenure. Under the terms of his employment contract: Bruce may resign from his position by providing the Group with four weeks written notice The Group may terminate this agreement by providing four weeks written notice or provide payment in lieu of the notice period, or the unexpired part of any notice period, based on Bruce's total remuneration The Group may terminate at any time without notice if serious misconduct has occurred Details of Bruce De Lacy's salary are detailed in the Remuneration Table. Details of all executive remuneration for KMPs are disclosed in the Remuneration Table. Group Performance The relation of rewards to performance of directors and executives is discussed above. The Group's revenue, profit before tax and earnings per share for the last five financial years is presented in the table below: 2017 $'000 2016 $'000 2015 $'000 2014 $'000 2013 $'000 Revenue 97,778 93,765 91,341 96,558 102,788 Net profit before tax 12,232 11,485 7,218 2,529 788 8,481 8,127 5,053 2,169 604 Share price at end of year 1.16 2.45 0.30 0.10 0.09 Basic earnings per share 15.37 14.73 9.16 3.93 1.09 Diluted earnings per share 15.37 14.73 9.16 3.93 1.09 Net profit after tax 13 Directors' Report (continued) A. Details of key management personnel remuneration (a) Remuneration Table Short Term Benefits Fees 2017 Phillip Campbell (i) Peter Bell Malcolm Ward Bruce De Lacy (ii) (iii) Total $ 13,462 45,421 45,421 Non-cash Benefits Long Service Leave Super $ $ $ $ $ - - - - Performance Based 1,279 % - 4,315 - - - - 4,315 93,636 3,765 (4,667) 28,637 21% 104,304 332,234 93,636 3,765 (4,667) 38,546 16% $ - $ - $ - $ - 3,855 % - - - - - 2,845 - Peter Bell 29,946 Malcolm Ward 29,946 Bruce De Lacy (ii) (iii) 14 Salary Performance Based Payment 332,234 40,577 (i) (ii) (iii) Post Employment - 2016 Phillip Campbell (i) Total Long Term Benefits 100,469 $ 237,093 - - - 2,845 - 145,662 4,329 4,667 26,027 35% 237,093 145,662 4,329 4,667 35,572 28% $ 14,741 49,736 49,736 453,605 567,818 $ 44,432 32,791 32,791 417,778 527,792 Appointed as director and Chairman on 4 September 2015, Resigned 30 September 2016. Salary and fees for Bruce De Lacy is made up of cash salary $327,728 (2016: $228,311) plus annual leave entitlement movement of $4,506 (2016: $8,782) Long term benefits for Bruce De Lacy of $4,667 were reported in 2016. Following a reassessment of the company's method of estimating the long service leave provision across the company no long term benefit is applicable in 2017 in relation to this director. Directors' Report (continued) (b) Directors' shareholding 2017 Balance 01/07/2016 Received as remuneration Options exercised Other Off market purchases/(sales) Balance 30/06/2017 Bruce De Lacy 195,502 - - - 195,502 Malcolm Ward 2,031,772 - - - 2,031,772 Peter Bell 2,246,250 - - - 2,246,250 4,473,524 - - - 4,473,524 Messrs. Peter Bell and Malcolm Ward have an indirect interest in the 27,486,302 shares held by West Coast Eggs Pty Ltd (2016: 27,486,302 shares) and the 1,000 shares held by Southern Egg Pty Ltd (2016: 1,000). Voting and comments made at the company's 2016 Annual General Meeting (AGM) At the company's 2016 AGM, a resolution to adopt the prior year remuneration report was put to the vote and at least 75% of \"yes\" votes were cast for the adoption of that report. No comments were made on the remuneration report that was conducted at the AGM. This is the end of the audited remuneration report. Rounding of amounts In accordance with ASIC Corporations (Rounding in Financial/Director's Reports) Instrument 2016/191, the amounts in the directors' report and in the financial report have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar (where indicated). Signed in accordance with a resolution of the Directors. Bruce De Lacy Director 18 August 2017 15 Ernst & Young Services Pty Limited 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melbourne VIC 3001 Tel: +61 3 9288 8000 Fax: +61 3 8650 7777 ey.com/au Auditor's Independence Declaration to the Directors of Farm Pride Foods Limited As lead auditor for the audit of Farm Pride Foods Limited for the financial year ended 30 June 2017, I declare to the best of my knowledge and belief, there have been: (a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (b) no contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Farm Pride Foods Limited and the entities it controlled during the financial year. Ernst & Young BJ Pollock Partner 18 August 2017 16 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2017 Notes 2017 $'000 2016 $'000 Sales revenue 5 97,576 93,615 Other income 5 202 150 97,778 93,765 Revenue and other income Less: Expenses Changes in inventories of finished goods and work in progress Raw materials and consumables used 6 1,150 (1,163) 6 (63,555) (58,863) Employee benefits expense 6 (13,008) (12,183) Depreciation 6 (3,331) (3,514) Impairment of property, plant & equipment 6 - (576) Finance costs 6 (150) (413) Other expenses (6,652) (5,568) Profit before income tax 12,232 11,485 (3,751) (3,358) Profit from continuing operations 8,481 8,127 Profit for the year 8,481 8,127 - 90 - 90 8,481 8,217 Income tax expense 7 Other Comprehensive Income Items that may be reclassified subsequently to profit and loss Cash flow hedge net of tax 19(a) Other comprehensive income for the period, net of income tax Total comprehensive income for the period Basic earnings per share (cents per share) 22 15.37 14.73 Diluted earnings per share (cents per share) 22 15.37 14.73 The accompanying notes form part of these financial statements 17 Consolidated Statement of Financial Position As at year ended 30 June 2017 2017 $'000 2016 $'000 9 8,038 3,438 Trade and other receivables 10 9,335 8,342 Inventories 11 4,572 3,422 Biological assets 13 7,730 7,223 Other current assets 12 1,045 303 30,720 22,728 13 422 378 7(c) 859 777 14 30,282 31,353 Total non-current assets 31,563 32,508 TOTAL ASSETS 62,283 55,236 Notes Current Assets Cash and short term deposits Total current assets Non-current assets Biological assets Deferred tax assets Property, plant and equipment Current liabilities Trade and other payables 15 11,996 11,788 Borrowings 16 327 895 Provisions 17 2,057 1,871 7(d) 1,115 2,121 15,495 16,675 Current tax payable Total current liabilities Non-current liabilities Borrowings 16 5 244 Provisions 17 143 158 148 402 15,643 17,077 46,640 38,159 29,578 29,578 17,062 8,581 46,640 38,159 Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed capital Retained earnings 18 The accompanying notes form part of these financial statements 18 Consolidated Statement of Changes in Equity For the Year Ended 30 June 2017 Balance as at 1 July 2016 Contributed Capital Retained earnings Cash Flow hedge reserve Total $'000 $'000 $'000 $'000 29,578 8,581 Profit for the year - 8,481 Other comprehensive income - - Total comprehensive income - 8,481 Balance as at 30 June 2017 29,578 17,062 Balance as at 1 July 2015 - 38,159 8,481 - 8,481 - 46,640 29,578 454 (90) 29,942 Profit for the year - 8,127 - 8,127 Other comprehensive income - - 90 90 Total comprehensive income - 8,127 90 8,217 Balance as at 30 June 2016 29,578 8,581 - 38,159 The accompanying notes form part of these financial statements 19 Consolidated Statement of Cash Flows For the Year Ended 30 June 2017 2017 $'000 2016 $'000 96,925 94,352 (84,348) (76,898) (150) (413) (4,839) (3,365) 73 11 7,661 13,687 21 4 Payment for property, plant and equipment (2,288) (6,420) Net cash used in investing activities (2,267) (6,416) - (3,000) Repayment of finance leases (794) (1,419) Net cash used in financing activities (794) (4,419) Net increase in cash and cash equivalents 4,600 2,852 Cash and cash equivalents at beginning of the year 3,438 586 8,038 3,438 Notes Cash flow from operating activities Receipts from customers Payments to suppliers and employees Finance costs Income tax paid Interest received Net cash provided by operating activities 20(a) Cash flow from investing activities Proceeds from sale of property, plant and equipment Cash flow from financing activities Repayment of borrowings Cash and cash equivalents at end of the year 20(b) The accompanying notes form part of these financial statements 20 Notes to the Consolidated Financial Statements Note 1: Statement of significant accounting policies The following is a summary of significant accounting policies adopted by the consolidated entity in the preparation and presentation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Farm Pride Foods Limited (the Company or parent) is a for profit company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange. (a) Basis of preparation of the financial report This financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The financial report has been prepared under the historical cost convention, as modified by revaluations to fair value for certain classes of assets as described in the accounting policies. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand ($000), except when otherwise indicated. The financial report was authorised for issue by the directors as at 18 August 2017. Compliance with International Financial Reporting Standards (IFRS) The consolidated financial statements of Farm Pride Foods Ltd also comply with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Significant accounting estimates The preparation of the financial report requires the use of certain estimates and judgements in applying the consolidated entity's accounting policies. Those estimates and judgements significant to the financial report are disclosed in Note 2. Comparative figures: The 2016 comparative figure for biological assets have been adjusted to conform with changes in presentation in the current year. The adjustment was the classification of $378 thousand from current assets to non-current assets to represent the true life of the flock asset after a management review of the financial statements. The consolidated presentation of financial information and reclassification is intended to provide more useful information. The amendment has had no effect on the total assets, total liabilities, profit before income tax or the total comprehensive income for the period. (b) Going concern The financial report has been prepared on a going concern basis. (c) Basis of consolidation The consolidated financial statements are those of the consolidated entity, comprising the financial statements of the parent entity and of all entities, which the parent entity controls. The group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies, which may exist. All inter-company balances and transactions, including any unrealised profits or losses have been eliminated on consolidation. Subsidiaries are consolidated from the date on which control is established and are derecognised from the date that control ceases. 21 Note 1: Summary of Significant Accounting Policies (continued) (d) Revenue Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and revenue can be measured reliably. Risks and rewards of ownership are considered to have passed to the buyer at time of delivery of the goods to the customer. Revenue from the sale of goods is measured at fair value of the consideration received or receivable, net of promotional expenditure and rebates. Interest revenue is recognised when it becomes receivable on a proportional basis taking into account the interest rates applicable to the financial assets. All revenue is stated net of the amount of goods and services tax (GST). (e) Cash and cash equivalents Cash and cash equivalents include cash on hand and at banks short term deposits with an original maturity of three months or less held at call with financial institutions, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position. (f) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct material, direct labour and a proportion of manufacturing overheads based on normal operating capacity, but excluding borrowing costs. Costs are assigned on a standard cost basis which approximates actual cost. The standard cost basis is reviewed by management regularly and adjusted to reflect current conditions, where necessary. Net realisable value is an estimated selling price in the ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale. (g) Property, plant and equipment Cost and valuation Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Repairs and maintenance are recognised in profit or loss as incurred. Depreciation Land is not depreciated. The depreciable amounts of all other property, plant and equipment are calculated using the straight-line method over their estimated useful lives commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The useful lives for each class of assets are: Freehold land and land improvements Buildings on freehold land and building improvements Plant and equipment Leased plant and equipment 2017 2016 40 years 40 years 1 to 20 years 5 to 20 years 40 years 40 years 1 to 20 years 5 to 20 years 22 Note 1: Summary of Significant Accounting Policies (continued) (h) Impairment of non-financial assets For impairment assessment purposes, assets are generally grouped at the lowest levels for which there are largely independent cash flows ('cash generating units'). Accordingly, most assets are tested for impairment at the cash-generating unit level. Because it does not generate cash flows independently of other assets or groups of assets, any goodwill recognised by the entity is allocated to the cash generating unit or units that are expected to benefit from the synergies arising from the business combination that gave rise to the goodwill. An impairment loss is recognised where the carrying amount of the asset or cash generating unit exceeds the asset's or cash generating unit's recoverable amount. The recoverable amount of an asset or cash generating unit is defined as the higher of its fair value less costs to sell and value in use. Refer to Note 2 for a description of how management determines value in use. Impairment losses in respect of individual assets are recognised immediately in profit or loss unless the asset is carried at a revalued amount such as property, plant and equipment, in which case the impairment loss is treated as a revaluation decrease in accordance with applicable Standard. Impairment losses in respect of cash generating units are allocated first against the carrying amount of any goodwill attributed to the cash generating unit with any remaining impairment loss allocated on a pro rate basis to the other assets comprising the relevant cash generating unit. (i) Leases Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Finance leases Leases of fixed assets, where substantially all of the risks and benefits incidental to ownership of the asset, but not the legal ownership, are transferred to the consolidated entity are classified as finance leases. Finance leases are capitalised, recording an asset and liability equal to the present value of the minimum lease payments, including any guaranteed residual values. The interest expense is calculated using the interest rate implicit in the lease and is included in financial costs in the statement of comprehensive income. Leased assets are depreciated on a straight line basis over their estimated useful lives where it is likely the consolidated entity will obtain ownership of the asset, or over the term of the lease. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Operating leases Operating lease payments are recognised as an operating expense on a straight line basis over the term of the lease. Lease incentives received under operating leases are recognised as a liability and amortised on a straight line basis over the term of the lease. (j) Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets. 23 Note 1: Summary of Significant Accounting Policies (continued) (k) Income tax Current income tax expenses or revenue is the tax payable on the current period's taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities. Deferred tax balances Deferred tax assets and liabilities are recognised for temporary differences at the applicable tax rates when the assets are expected to be recovered or liabilities are settled. Deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit nor taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Tax consolidation Farm Pride Foods Ltd and its wholly owned Australian controlled entities have implemented the tax consolidation legislation and have formed a tax-consolidated group from 1 July 2005. The head entity, Farm Pride Foods Ltd and its controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. The Group has applied the Group allocation approach in determining the appropriate amount of current taxes and deferred taxes to allocate to members of the tax consolidated group. In addition to its own current and deferred tax amounts, Farm Pride Foods Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group. Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities. (l) Provisions Provisions are recognised when the consolidated entity has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. (m) Employee benefits (i) Short term employee benefit obligations Liabilities arising in respect of wages and salaries, annual leave, accumulated sick leave and any other employee benefits (other than termination benefits) expected to be settled wholly before twelve months after the end of the annual reporting period are measured at the (undiscounted) amounts based on remuneration rates which are expected to be paid when the liability is settled. The expected cost of short term employee benefits in the form of compensated absences such as annual leave and accumulated sick leave is recognised in the provision for employee benefits. All other short term employee benefit obligations are presented as payables in the statement of financial position. 24 Note 1: Summary of Significant Accounting Policies (continued) (ii) Other long term employee benefit obligations The provision for other long term employee benefits, including obligations for long service leave and annual leave, which are not expected to be settled wholly before twelve months after the end of the reporting period, are measured at the present value of the estimated future cash outflow to be made in respect of the services provided by employees up to the reporting. Expected future payments incorporate anticipated future wage and salary levels, duration of service and employee turnover, and are discounted at rates determined by reference to market yields as the end of the reporting period on high quality corporate bonds that have maturity dates that approximate the terms of the obligations. Any re-measurements for changes in assumptions of obligations for other long term employee benefits are recognised in profit or loss in the period in which the change occurs. Other long term employee benefit obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. All other long term employee benefit obligations are presented as non-current liabilities in the statement of financial position. (iii) Superannuation The consolidated entity makes contributions to superannuation plans in respect of employee services rendered during the year. These superannuation contributions are recognised as an expense in the same period as when the employee services are received. (n) Borrowing costs Borrowing costs are expensed as incurred, except for borrowings directly incurred as part of the cost of the construction of a qualifying asset, in which case the costs are capitalised until the asset is ready for its intended use or sale. Borrowing costs can include interest expense calculated using the effective interest method, finance charges in respect of finance leases and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs and other costs that an entity incurs in connection with its borrowing of funds. (o) Financial instruments Classification The consolidated entity classifies its financial instruments, at initial recognition, in the following categories: financial assets at fair value through profit or loss, loans and receivables, held to maturity investments, available for sale financial assets or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The classification depends on the purpose for which the investments were acquired. Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and financial liabilities when the fair value is negative. Non-derivative financial instruments Non-derivative financial instruments consist of investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are initially recognised at fair value, plus directly attributable transaction costs (if any), except for instruments recorded at fair value through profit or loss. After initial recognition, nonderivative financial instruments are measured as described below. 25 Note 1: Summary of Significant Accounting Policies (continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest rate method. Financial Liabilities Financial liabilities include trade payables, other creditors, loans from third parties, loans or other amounts due to director-related entities. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. Subsequent to initial recognition non-derivative financial liabilities, comprising of interest bearing loans and borrowings, are recognised at amortised cost, comprising original debt less principal payments and effective interest rate amortisation. The effective interest rate amortisation is included as finance costs in the statement of profit or loss. Financial liabilities are classified as current liabilities unless the consolidated entity has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date. De-recognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. Hedge accounting Certain derivatives are designated as hedging instruments and are further classified as either fair value hedges or cash flow hedges. At the inception of each hedging transaction, the consolidated entity documents the relationship between the hedging instruments and hedged items, its risk management objective and its strategy for undertaking the hedge transaction. The consolidated entity also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in profit and loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (ii) Cash flow hedge To qualify as a cash flow hedge the underlying transactions generating the cash flows must be highly probable. Changes in the fair value of derivatives that are designated and qualified as cash flow hedges are recognised in equity in the cash flow hedging reserve. Any hedge ineffectiveness is recognised in profit or loss. This gain or loss is recorded in the cashflow hedging reserve and released to profit or loss in the same period as when the hedged transactions affects profit or loss. 26 Note 1: Summary of Significant Accounting Policies (continued) Impairment of financial assets Financial assets are tested for impairment at each financial year end to establish whether there is any objective evidence for impairment as a result of one or more events ('loss events') having occurred and which have an impact on the estimated future cash flows of the financial assets. For loans and receivables or held-to-maturity investments carried at amortised cost, impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The amount of the loss reduces the carrying amount of the asset and is recognised in profit or loss. The impairment loss is reversed through profit or loss if the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognised. (p) Foreign currency translations and balances Functional and presentation currency The financial statements of each entity within the consolidated entity are measured using the currency of the primary economic environment in which that entity operates (the functional currency). The consolidated financial statements are presented in Australian dollars which is the consolidated entity's functional and presentation currency. Transactions and balances Transactions in foreign currencies of entities within the consolidated entity are translated into functional currency at the rate of exchange ruling at the date of the transaction. Foreign currency monetary items that are outstanding at the reporting date (other than monetary items arising under foreign currency contracts where the exchange rate for that monetary item is fixed in the contract) are translated using the spot rate at the end of the financial year. Except for certain foreign currency hedges, all resulting exchange differences arising on settlement or restatement are recognised as revenues and expenses for the financial year. (q) Goods and services tax (GST) Revenues, expenses and purchased assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. 27 Note 1: Summary of Significant Accounting Policies (continued) (r) Biological Assets Biological assets comprise of flocks of hens and are valued at fair value. Fair value is not adjusted for costs to sell because disposal of the asset does not occur by sale. As there is no active market for flocks of hens, the fair value is based upon capitalised cost of poultry and is amortised over the productive life of the flock, which is between 50 and 60 weeks. The poultry flock is held for the purposes of producing eggs. Given the short productive life of the flock, an amortised cost approach has been adopted. The directors consider amortised cost to be an appropriate measure of fair value of the biological asset at the reporting date. Refer to Note 4: Fair Value Measurements for the details of the fair value measure key assumptions and inputs. (s) Comparatives Where necessary the comparative information has been reclassified and repositioned for consistency with current year disclosures. (t) Rounding Amounts The parent entity and consolidated entity have applied for relief available under ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and accordingly, the amounts in the financial statements and in the directors' report have been rounded to the nearest thousand dollars, or in certain cases, to the nearest dollar (where indicated). (u) Accounting standards issued but not yet effective at 30 June 2017 There are a number of Standards and Interpretations that will be mandatory in future reporting periods. We have not elected to early adopt these standards and interpretations. We are yet to quantify the effect on the reporting positions or performance of the consolidated entity. The Standards and Interpretations that are most relevant to the consolidated entity are set out below: AASB 9 Financial Instruments - Effective date 1 January 2018 (applicable date 1 July 2018) The standard includes a single approach for the classification and measurement of financial assets, based on cash flow characteristics and the business model used for the management of the financial instruments. It introduces the expected credit loss model for impairment of financial assets which replaces the incurred loss model used in AAAS 139. The standard also amends the rules on hedge accounting to align the accounting treatment with the risk management practices of the business. The consolidated entity does not currently expect the impact of these changes to be material. A more detailed assessment will be performed during 2018. AASB 15 Revenue from Contracts with Customers - Effective date 1 January 2018 (applicable date 1 July 2018) The core principle of AASB 15 is that an entity recognises revenue related to the transfer of promised goods and services when control of the goods or serves passes to customers. The amount of revenue recognised should reflect the consideration to which the entity expects to be entitled in exchange for the goods or services. Farm Pride Foods have undertaken an impact assessment of the implementation of the standard. This included a detailed review of the performance obligations contained within a number of contracts from all material revenue streams. The assessment has concluded that the standard is not expected to have a significant impact on the recognition and measurement of revenue by the Group, however the Group has not established a quantitative assessment. The new standard will result in increased financial report disclosures in respect of Group's revenue streams. The Group is in the final stages of completing its implementation plan for the new standard. 28 Note 1: Summary of Significant Accounting Policies (continued) AASB 16 Leases -Effective date 1 January 2019 (applicable date 1 July 2019) Under the new standard, a lessee is in essence required to: (a) Recognise all right of use assets and lease liabilities, with the exception of short term (under 12 months) and low value leases, on the balance sheet. The liability is initially measured at the present value of future lease payments for the lease term. This includes variable lease payments th